The Match Out: Stocks down but rally +50pts from lows, Iron Ore bounces, Star Entertainment (SGR) doesn’t

James Gerrish

Market Matters

A softer start to the week although the market did fight back well from early morning lows to close down only ~20pts. US Futures were sold off around our open today and that dragged the ASX down ~70pts, however 11am saw the worst of it and we grinded +50pts higher for the remainder of the day. Energy the main winner again however Iron Ore was up ~5% in Asia and that supported the material sector.

  • The ASX 200 fell -20pts /-0.28% to 7299 today
  • Materials bounced (1.2%) supported by Iron Ore, Fortescue (FMG) +5% after a tough period while again IT stocks were a drag down almost 3%
  • Star Entertainment (SGR) -23% whacked on media reports that implied they were as bad as Crown – more on that below
  • Ampol (ALD) +2.85% rallied after its New Zealand counterpart Z Energy unanimously backed the company’s NZ$2 billion takeover bid.
  • Adore Beauty (ABY) +6.91% was strong, Motley Fool put it out as one of their top picks late Friday and while it pains me to write that, seems it got the stock price going and to be fair they are recommending it at a better level than we did!
  • IAG Insurance (IAG) +3.08% up on a court ruling
  • Performance Reports for the Market Matters SMA’s will be out tomorrow for investors in those portfolios. The Growth SMA added +0.78% in September taking 12 months to 33.27%, Income SMA added +0.53% taking 12 month performance to 28.35%. The ASX was down ~2% in September.
  • Gold continues to hang around US$1755 – getting sick of writing that however it’s not budging
  • Iron Ore futures trading +4.54% in Asia
  • Asian markets mostly higher today – China +0.45%, Hong Kong +1.96% & Japan +1.17%
  • US Futures are trading flat

Commodities – a busy week

Quarterlies are kicking up in the mining sector this week and next with Whitehaven Coal (WHC) on Thursday plus Alumina (AWC) (via Alcoa) and Rio Tinto (RIO) on Friday. We’ll get another update from WHC on Friday with a meeting with management plus we also have a briefing with Newcrest (NCM) & Sandfire (SFR) post recent equity raise. While we don’t own SFR, we do like Copper and SFR is a value trade in the space. WHC rallied +6% today after a soft end to last week. Worth reiterating our positive stance here and while it’s likely to remain volatile, we still expect the stock to trade above $4 (soonish) with more if Coal prices stay as elevated as they are.

MM is long & bullish WHC

Star Entertainment (SGR) $3.30

SGR -22.90%: Whacked today on a damming 60 Minutes story last night into the casino. Not a lot we can add here, other to say that clearly casino’s across the board have dropped the ball in many areas, higher regulatory scrutiny has uncovered this, heads will roll and remediation will take place. We own Crown (CWN) from the mid $9’s which has been a frustrating position for us (we owned pre-takeover) however we continue to believe there is value in CWN over and above SGR, although the decline today for the latter makes that call a less obvious one.

MM has no position in SGR, we are long CWN

Fortescue Metals (FMG) $15.00

FMG +5.26%: out with their first major move in the push to become carbon neutral by 2030. The Global Green Energy Manufacturing centre will be built in Gladstone, Queensland to manufacture wind turbines, solar cells and electrolysers among other green hydrogen equipment. The first stage will establish Australia’s first multi-gigawatt electrolyser factory, capable of producing 2 gigawatts per annum which the company says is more than double the current production globally. They expect to spend $US83m on the first stage with planned investment up to $US650m. If nothing else, the market enjoyed getting some numbers put towards the green energy investment Fortescue has been trumpeting recently. They expect first production by early 2023.

Insurance Australia Group (IAG) $5.35

IAG +3.08%: the insurer has a test case in front of the Federal Court regarding potential liabilities around their Business Interruption Insurance as a result of COVID-19. An announcement today suggested they had some wins in their second run through the courts. IAG said the “Federal Court found in favour of insurers on a number of policy wording questions” with policyholders getting the upper hand on others. While light on detail, it does suggest insurers have had some significant wins and the impact may be less severe than feared when policy holders look to make claims. The test case will resume again in November.

MM is long and bullish IAG

Broker moves

  • Brambles Cut to Underperform at Jefferies; PT A$9.14
  • Pro Medicus Raised to Hold at Moelis & Company; PT A$53
  • Sonic Healthcare Rated New Equal-Weight at Barrenjoey; PT A$40

Major Movers Today

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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